A little over a year ago I posted that I thought a bear market had started and detailed the first steps I took to try to avoid the full brunt of what could have been a large decline. I detailed the subsequent trades I made to take a more defensive posture and then when I changed positioning to be less defensive. I've joked repeatedly about the number of times that the bear market called looked right, then wrong back and forth several times now raising concerns now it could be right again.

As I write this post the S&P 500 closed below its 200 day moving average for the first time in a while, the ten year US Treasury Note yields 2.14% while the three month bill yields 2.35% (curve inversion) and markets are navigating through a tariff (imposed and threatened) mine field. Also of note, the S&P 500 has spent the vast majority of the last year and half below the high sent on January 22, 2018. I would describe that last one a "kinda sort of" an indicator of a bear market.

When the S&P 500 is below it's 200 day moving average it is an indication that there is a problem with demand for equities. The problem might be serious or it might not, that is yet to be seen, but a problem nonetheless. A curve inversion impedes access to borrowing money from the standpoint of banks borrowing short to lend long. When capital for expansion and development is cut off it inhibits growth which makes it recessionary. I should note plenty of people smarter than me do not buy into this and frankly the logic is lost on me given the track record that curve inversions have for predicting recessions. An inversion is not automatically recessionary, it needs to persist for a while, cutting off access to capital, to be recessionary. You may find different takes on just how long it needs to be inverted but I would not want it to be longer than a month.

We still have BTAL which in the last month is up a little over 6% while the S&P 500 was down just under 6%, we also still have TAIL which was also up 6% in May, PTLC will switch to T-bills soon if the 200 DMA breach persists and GLD was up almost 2.5% in May (all numbers from Yahoo Finance). If things deteriorate further then I would expect to add some sort of inverse fund for more defense and we'll see from there what else we might need to do.

Don't be surprised if headlines and Tweets get louder, the most important thing you can do is stick to whatever process you chose as being best for yourself when you weren't concerned about falling prices, tariffs or whatever else you think is important in this environment.

Comments (2)
No. 1-2

Reading this with today's situation is frightening. If last year was a pretty bad year for market, how much more today, no businesses, no schools and lots of people lost their jobs. Inspite of this, let us stay encouraged, I'm certain that everything will return back to normal very soon.
-Sam Jewel, gas fitters north shore


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